Keeping Pace with New Service Contract Management Initiatives for Improved Revenues

by By Scott Herron On Nov 12, 2007

The advent of modular technology has created environments where thousands of technology products may contribute to an organization's success. Staying on top of the service contract lifecycles associated with these products is a challenge for the entire supply and demand chain, and it is a process that has become more complex than ever before.

With contract expirations that can take place on any given day, and coverage options that can change as time passes, it takes more than a simple spreadsheet to get the job done. Manufacturers must not only create new business rules and systems, but also put behavioral changes into effect if they want to realize marked improvements in service revenues. In addition, they must take into consideration the requirements of channel partner organizations in order to extend business processes beyond the confines of their own direct sales organizations.

The Shift toward Modular Technology

Over the last 20 years, the technology industry has experienced dramatic changes in the way enterprise technology products are bought and sold. In the past, individual unit-based purchases dominated the market. These purchases, typically for large-scale systems such as mainframes, represented milestone occasions that indicated major technology changes were afoot. To ensure the long-term success of such key investments, technology administrators carefully secured maintenance and warranty contracts at the time of purchase.

Conversely, in today's technology world, where technology infrastructure has become much more commoditized, the purchasing process has become less ceremonious and increasingly modular. New hardware flows into the enterprise on a regular basis, fitting into existing infrastructure without disruption. At the same time, this constant stream of new equipment has wreaked havoc on the management of service contracts. IT departments, once required to manage only a handful of service agreements emanating from only one or two vendors, must now track myriad contracts across a broad spectrum of manufacturers.

The impact of this evolutionary shift to modular technology is huge. It's significant for end customer organizations because it means that their purchases may be more at risk than ever before. It's also important for manufacturers and their channel partners throughout the supply chain because it means that a mountain of untapped service contract revenue exists. Yet it also signifies that important customer relationships are potentially in jeopardy. Indeed, every technology product sold without a maintenance agreement creates a potential liability for manufacturers as well as their customers.

Fortunately, new best practices for more effective service contract management are emerging. Many of these new practices are built around portal technologies that provide centralized, on-demand access to reporting, analytical tools and automated systems to deliver complete service contract management.

The Great Service Sales Opportunity

As purchase processes have become more modular, the industry has failed to keep pace with equally modular systems that manage service life cycles. Instead, the world's largest manufacturing organizations, as well as their supply chain partners, are relying upon an assortment of ineffective tools — some as basic as Excel spreadsheets. These tools, which were not built from the ground up for service contract management, fail to take into account the various data sources required to appropriately track service life cycles. Without knowing which customers have purchased service contracts, when those contracts are up for renewal and which customers possess uncovered assets (products not protected by service agreements), manufacturers don't have a proper handle on the service needs that exist within their customer bases. As a result, they are leaving substantial service dollars on the table.

Unfortunately, the process of uncovering the data required for effective service contract management is highly complex. Service contracts are often sold through a two-tiered channel consisting of a distributor and a value-added reseller (VAR), making sales processes complicated and leading to missing links in the collection of customer contract data. Challenges arise because adequate systems are not in place for properly registering or effectively tracking the sale of maintenance service contracts. In addition, data is stored in disparate systems, requiring time-intensive mining and management — an undertaking that most IT departments would rather avoid. Compounding the issue, distributors work with hundreds or even thousands of VARs, who in turn may also represent numerous manufacturers, each with individual business rules and methods for product registration. Consequently, the quality of registration and service data is often compromised, which not only leads to delays in end-customer service entitlements, but also hinders service sales and renewal efforts.

For the reasons outlined above, it's apparent that many companies have insufficient visibility into their maintenance annuity revenue streams. It's not that the data don't exist; it's that there are far too few effective tools and processes in place to leverage the existing data. In fact, it's estimated that most organizations have at least five years worth of asset and maintenance data that they can turn into major revenue streams today. Because these same companies have been so focused on identifying new customers, they have neglected this opportunity. Or, they simply have lacked the internal capability to turn that data into information from which they can fully benefit.

Implementing an Effective Service Contract Management Program

The beginnings of most service contract management issues can often be traced back to the time when a product is initially purchased. On average, only 60 percent of technology products sold with service get registered with the manufacturer. When a service product is not properly registered, it is not entered into the manufacturer's entitlement system, which is the data structure for all contracts that have been sold and registered. If no record of a contract exists, the manufacturer or VAR cannot effectively provide service, much less track expiration notifications. This results in lost service renewal opportunities as well as the risk of non-coverage for the end customer on critical assets. Even worse, lack of registration can lead to loss of the customer due to dissatisfaction. The primary reason for such low service registration rates is poor data quality, which is the principal driving force behind new service contract management practices emerging today.

To get a better handle on maintenance contract opportunities, every company should first focus on improving their product registration rates. Successful registration triggers contracted maintenance obligations and establishes a valid record of maintenance activity. In addition, registration information provides ongoing refresh opportunities as manufacturers and their channel partners look for ways to generate incremental revenue from their existing customer base.

Today's best emerging technology platforms for service contract management are designed to perfect the registration processes, with automated tools for ensuring that every customer is registered accurately and on time. The most effective service contract management solutions are based upon a Software-as-a-Service (SaaS) model that not only provides centralized, online access, but also delivers an opportunity for a leveraged investment across the entire supply and demand chain. The key to the success of these systems, and the reason they are so effective at registration, is that they are data integrity-driven. In the service contract management arena, this means that they are built to provide a complete picture into the service opportunity available by tapping into a variety of data sources and systems that exist across the supply chain.

This process involves extensive data mining and aggregation — and often requires customer data integration (CDI) technologies — as specialists work to create a single system of record. This single system of record is designed to deliver the highest levels of registration data possible. Once armed with this data, manufacturers and their partners can create business intelligence (BI), which they can prime for a variety of other functions beyond service registration, including creating a service renewal program, identifying unattached assets or creating a sales incentive program for the channel. With sufficient levels of BI, along with the flexibility to attack their most pressing service contract issues, manufacturers are better positioned to achieve substantial increases in service sales opportunities.

Moving Beyond the Entitlement System

Until recently, most service contract management solutions were reliant upon one primary source of data to perform renewals on expiring maintenance contracts. This source is the entitlement system. Since many service contracts go unregistered, and many of those that are registered are highly suspect as to the accuracy of the information they contain, manufacturers who rely upon the entitlement system alone are at best accessing only a portion of the available renewal opportunity.

To further complicate the situation, data become stale or "in-actionable" over time. Most solutions lack the capability for secure customer interaction or they require manual customer interaction and do not embrace the channel partner. As a result, customers and channel partners cannot effectively update the information with critical adds, moves or changes (MACs), further compromising the value of these "static" systems as time passes and MACs occur. This ultimately results in lost opportunities for renewal.

To prevent such loss, the new service contract management systems available today have the capability to leverage multiple "static" existing systems without disrupting or displacing current systems (such as point of sale systems) or processes, resulting in increased data integrity, more up-to-the-minute information, and ultimately, increased revenues. Further, because these CDI-based platforms provide flexible, automated and dynamic multi-party interaction, they allow the management of each product, service and registration as a transactional/dynamic property. In other words, as changes occur, the system is built to accommodate updates so that the supply and demand chain can stay in synch and on top of their evolving contracts as time goes on.

Access is Key

To serve as an effective tool for behavioral change, a service contract management system must also be ubiquitous: It must be easily accessible and available, and it must be able to serve as a single source of intelligence for the entire supply and demand chain.
Portal-based systems offer the ideal platform for ubiquity. They are accessible anywhere and anytime, allowing contract management on an as-needed basis. Further, because portals are hosted solutions, complete with implementation services and ongoing support, activation requires only minimal IT engagement and resources.

Once populated with high-quality data, Web-based portals become extremely effective, providing sales organizations and channel partners with a steady stream of actionable opportunities, while serving as a communications conduit for all parties. Access rights and privileges in a portal-based system can be granted at varying levels and with a range of capabilities tailored to each party. End customers, for example, can take advantage of a portal to balance their own internal systems against those of their suppliers to guard against inaccuracies or misinterpretations of service entitlements. Beyond arming all parties with insight into their entire array of maintenance service contracts, portal systems also can be configured to provide proactive e-mail notifications in advance of expiring services or to deliver notice of other factors affecting service agreements. They can even be built to incorporate market development funds, so that channel partners can clearly understand the potential value of their service sales efforts.

All-important Performance Measurement

No system or initiative is complete without performance measurement. That's why effective service contract management systems must allow manufacturers to gauge success with customers and with channel partners alike at a detailed level. BI reporting
capabilities are critical for accurately managing the performance of the supply chain. The best SaaS-based platforms are designed to allow manufacturers to use built-in analytics to measure the effectiveness of their multi-tiered value chain on everything from incentive programs, renewal rates and attach rates, to specific registration rates. This new visibility through the point of distribution can help manufacturers and their channel partners engage with a clear understanding of partner performance and the revenue impact their participation (or lack thereof) has on an organization's service revenues.

Proof Points of Success

Many manufacturers are already teaming up with their distributors and VARs to create systems for better managing maintenance contract data. In the technology sector, distributors such as Ingram Micro have already initiated service data management programs as well as Web portals that enable their VARs to easily identify and capitalize on service sales opportunities. In some cases, end customers can also access these portals, giving them the capability to stay on top of service contract expirations and other benefits and resources available to them.

As manufacturers adopt new best practices in this area, they become proof points of a maturing market, where processes are finally keeping pace with modular technology. By extending the value of their service contract systems across the supply and demand chain, companies have the potential to not only double renewal opportunities, but they can also achieve other measures of success that they never before thought were possible, such as improved brand loyalty and better communication with customers and partners.

About the Author:Scott Herron is CEO and co-founder of MaintenanceNet, Inc. (www.maintenancenet.com), a provider of maintenance contract management services.